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20 February 2018

China’s ‘New Silk Roads’ reach Latin America

A sharp, geoeconomic shift took place last month in Santiago, Chile at the second ministerial meeting of a forum grouping China and the 33-member Community of Latin American and Caribbean States.

The Chinese Foreign Minister, Wang Yi, told his audience that the world’s second-largest economy and Latin America should join efforts to support free trade. This was about “opposing protectionism” and “working for an open world economy,” he said.

After encouraging Latin American and Caribbean nations to participate in a major November expo in China, Wang delivered the clincher – Latin America should play a “meaningful” role in the ‘New Silk Roads’, known as the Belt and Road Initiative. The Chinese media duly highlighted the invitation.

The Latin American stretch of the Belt and Road project may not turn out to be as ambitious as the Eurasia program. Yet the trend is now clear with Beijing turbo-charging its infrastructure connectivity drive across the region and the Caribbean, with more deals on the way.

The strategic imperative is to build smooth connections across the continent, converging on its Pacific coastline – and forward through maritime supply lines to the Chinese seaboard. You could call it the Pacific Maritime Silk Road.

Last year, Chinese banks and institutions invested US$23 billion in Latin America – the biggest surge since 2010. And they are all in for the long haul.

Predictably, fellow BRICS member Brazil is the largest recipient of Chinese foreign investment for the past 10 years at about $46.1 billion, plus more than $10 billion in acquisitions. Russia, Indian and South Africa are the other nations that make up the BRICS bloc.

Costs plummeted

Marcos Troyjo, the director of the BricLab at Columbia University, has broken down the numbers. Up to mid-2010, Brazil was very expensive. Then suddenly costs plummeted because of the exchange rate or devaluation of companies.

Large Brazilian groups were badly damaged by the incredibly complex ‘Operation Car Wash’ corruption investigation. The infrastructure industry depended on state funds, which suddenly dried up and a wild privatization spree followed with Chinese, American and European groups taking advantage.

China is already the top trading partner of Brazil, Argentina, Chile and Peru. Others will inevitably follow. This is not only because China’s imports of commodities, such as iron ore, soy and corn tend to rise, but also because the Asia Infrastructure Investment Bank will increase lending.

China’s master plan for Latin American trade and investment follows what is dubbed the “1+3+6” framework, mapped out by President Xi Jinping in July 2014 at a summit in Brasilia. The “1” refers to the cooperation plan itself, guiding specific projects and ranging from 2015 to 2019 as Beijing aims for $250 billion in direct investment and around $500 billion in trade.

The “3” is about the key areas of cooperation – trade, investment and finance. And the “6” prioritizes cooperation in energy and resources, and infrastructure construction, as well as agriculture, manufacturing, scientific and technological innovation, alongside information technology.

The top three Latin American powers, Brazil, Argentina and Mexico, who also happen to be G20 members, are all into major infrastructure expansion, which fits into Beijing’s plan.

Of course, there will be serious snags along the way, such as the $50 billion Nicaragua Inter-Oceanic Canal, now competing with a surge in Panama-China relations after the country broke ties with Taiwan. And the game-changing, transcontinental, Atlantic-Pacific railway between Brazil and Peru is also a long way away.

But Foreign Minister Wang was been careful to explain how this proposed Latin Belt and Road program will benefit the Latin American region. “It has nothing to do with geopolitical competition,” he said. “It follows the principle of achieving shared growth through discussion and collaboration. It is nothing like a zero-sum game.”

In the end, China’s geopolitical rewards will end up positively riling the Trump administration, which has taken its eye off the ball in its own backyard. Rex Tillerson, the Secretary of State, decided to hit the road a few days after the China-Latin America summit in Santiago with pit stops in Mexico, Argentina, Peru, Colombia, and Jamaica.

He underlined the Monroe Doctrine a cornerstone of US policy in the region. “[It] clearly has been a success, because … what binds us together in this hemisphere are shared democratic values.”

‘Imperial powers’

Tillerson then bashed China, saying Latin America “does not need new imperial powers.” The Global Times stressed how Tillerson “showed disdain” to China’s “constructive approach.” “China has no military bases in the region and has dispatched no troops to any of the Latin American countries,” it said.

Tillerson most of all bashed Venezuela. He suggested sanctions aimed at “the regime” and not “the Venezuela people,” and claimed that President Nicolas Maduro could face a military coup even though Washington was not gunning for a regime change.

In fact, doubts persist on whether President Donald Trump will even show up at the next Summit of the Americas in April in Peru. The contrast is stark with President Xi, who has visited three times since 2012.

Still, a rash of academic papers has shown how Brazil and Argentina have reoriented their foreign policy from a “pro-South” stance towards a pro-US neoliberal view. Yet, China keeps advancing – geoeconomically and geopolitically.

And that appears to be a trend. Washington will need to invest in a much more sophisticated game if it is to compete economically against China. That would turn out to be the ideal trade and investment scenario which would profit Latin America the most.

Public opinion seems to have made up its mind. Across Latin America, according to a Gallup poll, approval of US foreign policy has dropped from 49% in 2016 to 24% last year. Approval of President Trump stands at a dismal 16%.

In sharp contrast, China’s investment through the Belt and Road Initiative has given President Xi a distinct advantage.